India and Its Retail Sector: Wal-Mart in the Political Sphere - Essay Example

Organizations or firms cannot remain “static”. They has to keep on moving breaking ‘boundaries’ both geographically as well as economically, to actualize the opportunities and emerge successful. That is, with every firms wanting to expand their geographical reach and make an imprint in various markets, there will be enough opportunities for it, to initiate an entry into a foreign market. For example, the Asian country of India has some distinct aspects, which will surely act as an advantage for the new firms, who are planning to enter it. Likewise, the retail industry in India also has some inbuilt favorable factors particularly in the political, social, legal and economic spheres, which may facilitate foreign invested retail firms’ like Wal-Mart’s entry. This paper will focus on India and its retail sector analyzing the opportunities, it presents for Wal-Mart. Background Globalization is having major impacts on the economic sphere of many developing countries like India, working as a catalyst for the economic development. Globalization turned out to be a godsend opportunity to these countries. That is, these countries opened up their markets and invited the foreign companies with a slew of schemes and benefits. India has also become part of global plans of many organizations mainly due to globalization. That is, when globalization or liberation made its entry into in early 1990’s, it opened the door for foreign companies including retail firms (but with caps) to reach India, benefiting both the Indian people and the companies. Political and Legal In any country all over the world, their respective governments with their set of laws will only have a strong hold on the processes involving the entry of foreign firms, and India’s government is no exception. When viewed from the perspective of foreign retail firms like Wal-Mart, this year’s resounding election victory of the Congress party and the re-election of liberalization initiator, Manmohan Singh as the Prime Minister augurs well. As mentioned above, it was Manmohan Singh who in 1991 as the Finance Minister opened up the Indian market in various sectors to the foreign firms and so his re-election that too without the support of Communists, who are anti-foreign investment party, is important political opportunity. “The strong showing of the Congress-led political alliance in national elections meant the Government, led by Prime Minister Manmohan Singh, no longer needed the support of communist parties for its survival.” (Wade 2009). The other favorable action in the political sphere is the release of the Government prepared economic blueprint called the Economic Survey of India, which recommended easing of restrictions on foreign firms’ entry. This survey prepared by the Economic planning commission under the auspices of the Indian government’s Finance ministry and fully endorsed by the current Finance Minister Pranab Mukherjee, recommends that foreign investment restrictions on India’s retail sector should be eased, especially in the food sector. If it goes ahead, this change could create great opportunities for retailers worldwide including Australian retailers in one of the world’s biggest markets. (Wade 2009). Political opportunities also came in the form of the influencing act of US Secretary of State, Hilary Clinton. It was rumoured that she might have raised the issue of opening up of the Indian retail market with the Indian ministers and officials during August 2009 visit. The other decision of the government which provides further political opportunities for the retail firms like Wal-Mart planning to enter India is the decision of the Foreign Investment Promotion Board under the auspices of the Finance ministry. That is, the Foreign Investment Promotion Board in recent months has become less rigid in the issue of granting approvals for foreign companies which plans to do cash-and-carry wholesaling. (The Economist Intelligence Unit Limited 2005). The existing stance of allowing only single brand retailers and franchises can be diluted and FDI in retail would be opened up in a calibrated manner. So, this decision of the Board to grant more approvals for cash-and-carry wholesaling is a complementary and a welcome development for the Wal-Mart in the political sphere. Social-cultural India in the post-globalization era (that is, after 1991) is witnessing an all round development, showing advancement in many aspects of life. So, with India forming an important part of globalization, the standard of living has increased to good measure. With Information technology reaching different corners of the country and many youth getting placed in various IT majors, the purchasing power of the target segment of 18-35 have increased very much. That is, India being a large country with its population on the higher side and the economy also developing due to the IT boom, a large proportion of people have come inside the bracket of high range buyers. That is, from the days when the median monthly income stood at $60 now it is reaching around $125 – as India has a large population of people living under the poverty line, $125 is the median salary of whole of India. This increase in median salary among the target segment will augur well for the success of Wal-Mart planning to enter India. The target segment of professionals, business people and youths of India, like any where else in the world, see the habit of buying from retail chains as one of the important part of their lifestyles. “About 47% of India's population is under the age of 20; and this will increase to 55% by 2015. This young population, which is technology-savvy, watch more than 50 TV satellite channels, and display the highest propensity to spend, will immensely contribute to the growth of the retail sector in the country.” (rbs.edu.in). Their financial resources and their mindset to go for new products from retail chains for practical purposes is also a crucial factor. In earlier times, Indian people will approach the local grocery shops where they will stand in front of the retail stores, even without entering it, and ask and buy products with the salespeople providing each and every product. This culture based inconveniences got erased when local supermarkets made their entry and even changed or reoriented the buying culture of the many people. That is, their entry and services made many people to opt and wish for retail stores instead of local grocery shops and this culture can be fully optimized by Wal-Mart for entering India. Also, with the local socio-cultural conditions contributing to the deterioration in the quality of the products, the scope for the entry of foreign firms with quality products increases. This factor would also work as an opportunity for Wal-Mart to make a strong impression in the Indian market. So, it is clear that sizeable sections of the population equipped with higher income, credit cards, exposure to new shopping culture of west, desire to show status and to improve standard of living, wants to spend a lot and this gives good opportunities to foreign retail firms. (articlesbase.com 2009). Economic All economic projections for India, particularly for Wal-Mart wishing to operate in the retail sector, appear very rosy, promising and productive. Indian Economy including the Indian retail industry is expected to grow manifold and can productively accommodate foreign firms as well. Merrill Lynch, the well known financial management and advisory firm, expects the Indian retail industry to grow to US$300bn by 2010. (The Economist Intelligence Unit Limited 2005). Merrill Lynch also believes that along with the indigenous organized sector, there is enough space for the foreign firms to tap the unexplored sections. One way for the government to do this is to open up organized retail to foreign direct investment (FDI).There is huge scope for specialists to revolutionize retail in India as only 1.5 per cent of all food and grocery sales in India take place in Western-style supermarkets. (Wade 2009). Even during current global economic downturn, retail sector in India is showing positive growth as it is growing at a yearly rate of about 15 per cent, giving the foreign firms good economic opportunity to invest in India. Also, India is a member of the World Trade Organization and as a policy, India has to abide by the rules and regulations of the WTO. WTO has been putting pressure on the Indian government to open up many sectors and retail in particular. This is one of the reasons why the present government is acting favorably towards opening up of the retail sector. Hence Wal-Mart can get its way cleared in its attempt to enter India. The entry of foreign competition not only provides economic benefits to the foreign firms but also to the locals. That is, from the economic perspective, the entry of foreign firms in retail could lead to lower prices, resulting in high consumer spending and also an improvement in the tax receipts for the government. “The McKinsey institute reckons that economies of scale and superior operations will allow modern stores such as hypermarkets to be 35-40% cheaper than traditional stores, and this in turn will increase consumer spend. Employment will also get a boost.” (The Economist Intelligence Unit Limited 2005). Also, as the foreign retail firms like Wal-Mart utilizes and develops local small-scale manufacturers as well as India’s largest sector of agriculture, paths for the entry of Wal-Mart could be laid quickly and aptly. From another economic perspective, with the cost of the labor also in the lower ranges, the foreign retail firms will not have to spend a lot while constructing or establishing the infrastructures. Likewise, the cost of hiring and retaining the employees will be also on the lower side. Conclusion or the decision After having analyzed the market of India and its retail sector, the odds are in the favor of Wal-Mart entering India and so India needs to be further analyzed by the team for its market potential. The current political government has given some feasible options for the foreign firms to enter and even the restrictions could be relaxed due to the presence of a single majority pro-liberalization government. With economy booming and being the country with the second highest population or prospective customers who want the retail store culture, India will be a good option for entry by Wal-Mart. India’s retail industry has a lot of potential and this can be tapped by Wal-Mart. Reference articlesbase.com. (2009). A Spectacular Transformation of Retail Scenario in India. Retrieved on March 6, 2010 from http://www.articlesbase.com/marketing-articles/a-spectacular-transformation-of-retail-scenario-in-india-with-special-reference-to-kolkata-1053087.html The Economist Intelligence Unit Limited. (2005). India miscellaneous: Should India open its retail sector to foreign investors? Retrieved on March 6, 2010 from http://www.ebusinessforum.com/index.asp?layout=rich_story&doc_id=7485&categoryid=&channelid=&search=mckinsey rbs.edu.in. Retailing Virus. Retrieved on March 6, 2010 from http://www.rbs.edu.in/research/ret.html Wade, M. (2009). Retail players eager to corner Indian market. Retrieved on March 6, 2010 from http://thebigchair.com.au/news/focus/retail-corners-india Read More